Fed to End QE in October Focuses on Positive US Growth

The Federal Reserve on Wednesday ended its monthly bond purchase program and signaled confidence the U.S. economic recovery would remain on track despite signs of a slowdown in many parts of the global economy.

“The Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability,” the central bank’s policy committee said in a statement following a two-day meeting.

The statement largely dismissed recent financial market volatility, dimming growth in Europe and a weak inflation outlook as headwinds that would do little to undercut progress toward the Fed’s unemployment and inflation goals.

 
The Fed pointed to strengthening labor markets, saying that slack in labor markets was “gradually diminishing.”

It retained its basic language regarding interest rates from recent statements, saying that rates would remain low for a “considerable time” following the end of the bond purchases this month.

The timing and pace of rate hikes would depend on incoming economic data, the Fed said, new language that apparently earned the support of Philadelphia Fed President Charles Plosser and Dallas Fed President Richard Fisher, who dissented at the previous meeting.

On inflation, the Fed acknowledged that lower energy prices and other forces were holding inflation down, but that overall the economy should progress toward the central bank’s 2 percent target.

“The Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year,” the statement said.

Minneapolis Fed President Narayana Kocherlakota was the only dissent on the grounds that a downturn in inflation expectations meant the Fed should commit to keeping interest rates lower for longer.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza